Dow Jones Futures Fall On Weak Microsoft Guidance; Tesla Earnings On Tap

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Dow Jones futures fell early Wednesday, along with S&P 500 futures and Nasdaq futures, as Microsoft (MSFT) guidance overrode better-than-feared earnings late Tuesday ASML (ASML) beat forecasts, with Boeing (BA) and Tesla (TSLA) also on tap today.

The stock market rally traded in a relatively narrow range Tuesday after big gains in the prior two sessions. The major indexes closed mixed. The Nasdaq retreated as the Justice Department filed a second antitrust suit vs. Google parent Alphabet (GOOGL).

Microsoft earnings edged past views after the close on strong cloud-computing growth. But the software giant gave weak guidance. MSFT stock, up strongly initially late Tuesday, reversed lower and was down modestly before Wednesday’s open.

Intuitive Surgical (ISRG) and Texas Instruments (TXN) also reported. ISRG earnings missed with in-line revenue. Texas Instruments slightly beat, but guided lower. ISRG stock tumbled while TXN stock fell slightly.-

Early Wednesday, chip-equipment giant ASML reported better-than-expected Q4 earnings and sales, with bullish Q1 revenue guidance and a dividend hike. But ASML declined 2% in premarket trade. Fellow semiconductor-equipment makers Lam Research (LRCX), Teradyne (TER) and Wolfspeed (WOLF) are due after the close.

Boeing and Freeport-McMoRan (FCX) also report early Wednesday.

Tesla will headline earnings Wednesday night. Tesla earnings will be important but investors will likely focus on 2023 guidance, especially following big price cuts worldwide to start the year. Those price cuts have boosted Tesla demand — at the expense of margins — but will that boost last?

After the close, Tesla said it will spend $3.6 billion to expand its original “Gigafactory” outside Reno, Nevada. It’ll be used for a Tesla Semi line and for mass producing 4680 battery cells.

Tesla stock fell 1% early Wednesday. Shares edged up 0.1% on Tuesday to 143.89, nearing the 50-day line. TSLA stock is up nearly 17% so far in 2023.

Dow Jones Futures Today

Dow Jones futures fell 0.45% vs. fair value. S&P 500 futures declined 0.7%. Nasdaq 100 futures sank 1.1%. MSFT stock is a Dow Jones, S&P 500 and Nasdaq component.

The 10-year Treasury yield sank 3 basis points to 3.44%.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

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Stock Market Rally

After a NYSE glitch disrupted some 100 tickers at the open, the stock market rally traded modestly lower in the morning before gradually improving to mixed.

The Dow Jones Industrial Average rose 0.3% in Tuesday’s stock market trading. The S&P 500 index dipped 0.1%. The Nasdaq composite declined 0.3%. The small-cap Russell 2000 gave up 0.25%.

U.S. crude oil prices fell 1.8% to $80.13 a barrel. Natural gas slumped 5.5% after rising more than 6% Monday.

The 10-year Treasury yield fell basis points to 3.47% amid mixed to weak manufacturing data.

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DOJ Sues Google Again

The DOJ sued Google over its online ad dominance, seeking to force the company to divest certain assets. In October 2020, the Justice Department filed an antitrust suit over alleged misuse of online search power. Groups of states have three antitrust suits against Google, including one involving advertising.

Google stock fell 2.1% to 97.70 on Tuesday, although that’s after running 10% higher in heavy volume in the prior three sessions.

Google reports Q4 earnings on Feb. 2.

ETFs

Among growth ETFs, the Innovator IBD 50 ETF (FFTY) and Innovator IBD Breakout Opportunities ETF (BOUT) edged higher. The iShares Expanded Tech-Software Sector ETF (IGV) declined 0.6%. Microsoft stock is a major IGV component.

The VanEck Vectors Semiconductor ETF (SMH) fell 0.7%, ASML stock is a big holding, with TXN, LRCX and TER also in SMH.

Reflecting stocks with more speculative stories, the ARK Innovation ETF (ARKK) sank 1.6% and ARK Genomics (ARKG) lost 1.4%. Tesla stock is a major holding across Ark Invest’s ETFs. Cathie Wood’s Ark has been beefing up its TSLA position in recent weeks, adding shares are recently as Monday.

The SPDR S&P Metals & Mining ETF (XME) rose 0.2%, and the Global X U.S. Infrastructure Development ETF (PAVE) climbed 0.4%. U.S. Global Jets (JETS) blipped lower. SPDR S&P Homebuilders ETF (XHB) advanced 0.4%. The Energy Select SPDR ETF (XLE) ceded 0.4% and the Financial Select SPDR ETF (XLF) nudged up 0.1%. The Health Care Select Sector SPDR Fund (XLV) fell 0.7%.

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Microsoft Earnings

Microsoft earnings fell 6% vs. a year earlier, excluding various items, just beating fiscal Q2 views. Revenue rose 1.9%, the smallest increase in more than six years and missing forecasts. Revenue from Azure and other cloud-computing services jumped 31% — 38% excluding currency swings — slightly exceeding consensus views. Analysts had been worried about Azure growth.

Investors were relieved by the Dow Jones tech titan’s decent results. But Microsoft gave weak guidance, warning about decelerating activity.

MSFT stock fell nearly 3% early Wednesday after initially jumping 5% or more after hours.

Last week, Microsoft announced plans to cut 10,000 jobs, about 4.5% of staff.

Shares dipped 0.2% to 242.04 on Tuesday, holding the 50-day line after retaking that key level on Monday. Arguably, Microsoft stock has a bottoming base with a 264.02 buy point. It formed below the 200-day line, but a breakout would involve clearing that level and breaking a long downtrend.

Microsoft earnings and guidance are important for other software makers, PC-related stocks and cloud-computing plays such as Google and Amazon.com (AMZN). Microsoft’s recent big stake and alliance with ChatGPT creator OpenAI could be another threat to Google and Amazon.

Amazon and several cloud software firms fell overnight after initially rallying on Microsoft earnings.

Market Rally Analysis

The stock market rally paused Tuesday, with the major indexes finishing mixed. But that was normal action after big gains on Friday and Monday, especially heading into a huge flood of earnings.

The S&P 500, which cleared last week’s highs and the 4,000 level on Monday, held those key levels.

The Nasdaq composite dipped and is still modestly below the 200-day line and December highs.

The Dow Jones extended its rise from the 50-day line after retaking that key level Monday

The small-cap Russell 200 edged lower but is close to its late-2022 peaks.

The market rally is looking strong, but the major indexes all face resistance levels. Tech has been leading the market in 2023, but now we’re going to get a barrage of tech earnings. Even if the macroeconomic picture steadies and the Fed rate hikes wind down, companies could slash guidance in the next few weeks.

Microsoft could just be start.

In addition to Tesla, ASML and Boeing on Wednesday, Apple (AAPL), Facebook parent Meta Platforms (META), Amazon, AMD (AMD), Google and many more are due to report next week

If the market rally has cleared late-2022 highs at the end of next week, it would be a strong signal that a sustained uptrend is underway.

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What To Do Now

The stock market rally has been showing more strength and offering a number of buying opportunities.

Investors should be adding exposure gradually and not getting get too concentrated into a specific stock or sector. Earnings season could roil the market, but especially individual stocks. One option for investors is to buy market or sector ETFs, along with individual names.

Definitely focus on building up your watchlists. Be aware of key earnings for the market and your holdings, including rivals, customers and suppliers to that companies that you have positions in.

Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.